The group’s new subsidiary PowerCo plans to begin production of its high-volume “unified” cell in St. Thomas in the province of Ontario in 2027 as it seeks to narrow the gap with industry heavyweight Tesla.

While no financial details were disclosed, VW uses a standardized layout based on its first cell factory in Germany’s Salzgitter, which is estimated to cost €2 billion ($2.2 billion).

“Electric mobility is our opportunity for growth in the North American region, and we’re pushing ahead with an ambitious strategy to take a leading position,” said Volkswagen Group of America CEO Pablo Di Si in a statement on Monday. “PowerCo’s investment in Canada will underpin that strategy by meeting our needs for a stable supply of electric vehicle batteries.”

Lithium-ion battery cells are the heart of electric vehicles.

Not only does their chemical profile determine performance of a vehicle and the speed of charging, they can also represent roughly 40% of an EV’s cost thanks to the use of expensive metals like nickel and cobalt.

PowerCo’s main product is a standardized battery cell that can flexibly employ either high nickel, manganese, or iron-based chemistries depending on the starting price of the vehicle.

Four out of every five cells VW will use in its EVs will be powered by these “unified cells.”

How Canada won the race

President Joe Biden has made it a priority of his administration to encourage companies to invest in U.S. manufacturing, in particular when it comes to green technology like EVs thanks to tax breaks offered by the Inflation Reduction Act.

PowerCo chairman Thomas Schmall told reporters during a briefing in Salzgitter on Monday that some 200 different parameters were considered when selecting the location for VW’s first North American battery cell factory, including proximity both to raw materials as well as to its U.S. factories.

VW said that Canada offers ideal conditions thanks to a local supply of important raw materials and abundant access to clean electricity. 

The country’s minister for science and industry, François-Philippe Champagne, called it a “vote of confidence in Canada as the green supplier of choice to the world.”

The cells produced in St. Thomas will feed VW’s Chattanooga plant, where the electric ID.4 crossover is currently built.

The St. Thomas plant will also supply a new production site in South Carolina, where the company will build electric SUVs and trucks under the Scout brand. 

More than 200,000 Scout vehicles are expected to run off the assembly line annually in Columbia, S.C., when production begins at the end of 2026.

“Based on current estimates, we will need roughly 60 to 100 gigawatt-hours of cell supply to meet projected North American EV demand by 2030,” Schmall told reporters on Monday.

By comparison, Salzgitter is expected to supply 40 GWh worth of cells annually, enough for about half a million electric vehicles, when its production begins in two years’ time.

All told PowerCo plans to invest up to €30 billion by 2030 to build out its global cell-manufacturing base.

St. Thomas is the third site the company has selected after Salzgitter and Valencia in Spain.

“With the decisions for cell production in Canada and a Scout site in South Carolina, we’re fast-forwarding the execution of our North American strategy,” VW Group CEO Oliver Blume said.